Question

What's the difference between :

1.Objective Risk vs. Subjective Risk

2.Peril and Hazard

3.Objective Probability vs. Subjective Probability

4.Pure and Speculative Risk

5.Diversifiable Risk and Non diversifiable Risk

Answer 1

Difference between objective risk vs. subjective risk-

Objective risk are those risk which are measurable directly or indirectly and which are quantified also. In other words it is the variation of actual amount of losses that occur over a period of time compared to the expected amount of losses

Subjective risk are those risk which is less quantifiable,because the parameters affecting the are less well known.( eg; likelihood of losing income due to depression,one starts missing work due to depression and is very unlikely to even recognition.)

Difference between Peril and Hazard

Peril is something which can cause loss,while hazard is something which makes the occurance of peril or loss..These terms are commonly used in Insurance industry.

A Peril can be anything which causes financial loss.it includes loss due to theft, car crash,illness,fires,disability etc.

A Hazard is something which increases the chance of Peril can occur. It includes leaving car door unlocked, and driving driving while drinking.

Difference between Objective probability and Subjective probability

Objective probability is the the probability an event will occur based on past collected data and records

While in Subjective probability it allows the observer to gain insight through their own experience.It contains no formal calculations, it only deals with past knowledge and experience.

Difference between Pure and Speculative risk

Pure risk have two possibilities: something bad happening or nothing happening.Pure risk are those risk which cannot be controlled. There is no gain under pure risk. it include mainly in natural disasters.

Speculative risk have three possible outcomes exist, something good ,something bad, nothing. eg are Gambling and investing in stock market. Each may offers a chance to make money or chance to cause loss or nothing may happen.

Difference between Diversifiable risk and non Diversifiable risk

Diversifiable Risk are those risk which can be eliminated through portfolio operations, that is one loss can be minimised from other gains. Diversifiable risk is the chance that the price of a security will change due to the characteristics of that security.

Non diversifiable risk are those risk which cannot offset from other, which is common to entire assets and liability. The investment value in a particular time might change due to the economic events that affect most sections of the market.